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A Hedge Fund Insider Explains Why Retail Investors Should Flee The Stock Market
Regular readers know that ever since 2009, well before the confidence destroying flash crash of May 2010, Zero Hedge had been advocating that regular retail investors shun the equity market in its entirety as it is anything but "fair and efficient" in which frontrunning for a select few is legal, in which insider trading is permitted for politicians and is masked as "expert networks" for others, in which the government itself leaks information to a hand-picked elite of the wealthiest investors, in which investment banks send out their "huddle" top picks to "whale" accounts before everyone else gets access, in which hedge funds form "clubs" and collude in moving the market, in which millisecond algorithms make instantaneous decisions which regular investors can never hope to beat, in which daily record volatility triggers sell limits virtually assuring daytrading losses, and where the bid/ask spreads for all but the choicest few make the prospect of breaking even, let alone winning, quite daunting. In short: a rigged casino. What is gratifying is to see that this warning is permeating an ever broader cross-section of the retail population with hundreds of billions in equity fund outflows in the past two years. And yet, some pathological gamblers still return day after day, in hope of striking it rich, despite odds which make a slot machine seem like the proverbial pot of gold at the end of the rainbow. In that regard, we are happy to present another perspective: this time from a hedge fund insider who while advocating his support for the OWS movement, explains, in no uncertain terms, and in a somewhat more detailed and lucid fashion, both how and why the market is not only broken, but rigged, and why it is nothing but a wealth extraction mechanism in which the richest slowly but surely steal the money from everyone else who still trades any public stock equity.
From Reddit: I work in Wall Street and work in hedge fund analysis. I'm the only person in my office who supports OWS
This is a self-post, so I'm not trying to karma-whore or anything. I have a message I want to share with anyone who's interested.
I'm writing this in hopes that the OWS movement can have a better understanding of the hedge fund industry and the financial markets. With OWS being the zeitgeist of current politics, I think it's important to know how exactly the hedge funds, along with the financial markets are destroying the 99%.
Hedge funds. These guys are basically the vehicles of choice for ultra-rich people to get into the financial markets, besides family offices and private wealth managers. What are hedge funds? They are funds that have a 1-5 million deposit minimum, cater to the mega-rich, and can invest in anything without regulatory restrictions, use leverage to pump up their exposure by 15x, and pretty much eat up a vast majority of the industry's profits.
These guys invest in EVERYTHING. Instruments you've heard of - stocks, bonds, forwards, futures, currencies, and instruments that you, me, or anyone else have never even heard of, much less know anything about: commodity future swaptions, FRA/OIS swaps, CLOs, exotic future options, p-notes, index/commodity/equity exposures, and a huge array of OTC (over-the-counter) instruments that no regular investor would ever have access to.
Why I bring this up: the financial markets are rigged. 99% of the investing public has access to services such as basic brokerages, 401k/IRA's, mutual funds, pension plans, etc. Some of these services, especially pension funds, will invest into hedge funds, who take an additional 2 and 20 (meaning 2% of assets plus 20% of capital gains).
What this means is that if you go any of the traditional retail routes, you are utterly screwed facing off against the hedge funds.
First, you are paying exorbitant fees. Commissions on every stock trade. Mutual fund managers taking a cut - an annual % cut, as well as a % per profit cut. If these managers (i.e. pension plans) invest in another fund, that fund is also taking another % cut. You're down 2% the minute you invest your money.
Next, if you're doing the investing yourself, you're paying ridiculous spreads. The bid/ask spread of a stock will cause you to be down another 2-3% the minute you buy the stock. For example, if you're buying a share of company at $4.25, you can sell back at only $4.15.
Furthermore, you have absolutely no chance in terms of access to the best services. Hedge funds have a direct line to investment bank's institutional brokerage teams - these are the guys that spend day and night sucking up to hedge funds, trying to get them the best deals at the cheapest rates. This means that while you're buying stocks and bonds, hedge funds are getting special rights, warrants, sweetheart deals, private placement deals, options, bigger discounts on bonds, and much better bulk commission rates and lower spreads on stocks. If you're paying 4.25$ for a 4.15$ stock, they are paying something like 4.16$. And they are eating alive your profits because when the stock goes up to $4.30, they can activate another warrant to purchase 20m shares at $4.25, diluting the value of your shares.
Next, you lack information and exposure. You have no idea what is going on in the market besides what you see on the news - while hedge funds have analysts working around the clock and a bunch of service providers who give minute-by-minute analysis of their portfolio opportunities and weaknesses in all markets with exposures to nearly everything. Meaning, if there is an opportunity in the real estate market (i.e. legislation), it might take you weeks to get in - hedge funds will have gotten in the minute the legislation was passed. Furthermore, when IPOs come out for companies, hedge funds get top billing on the primary market shares - which means investment banks are selling directly to them. Once the secondary market becomes available, hedge funds are up 15-20% on these investments, sometimes within hours.
Finally, you have no capital compared to these hedge funds. The people who invest in these hedge funds are not just the 1%, they are the 0.1%. These are the guys with 500million dollar bank accounts and the ability to do whatever the fuck they want. Hedge funds know this, and they invest without having to care about whether their clients can pay the rent or send their kids to college. All of that is irrelevant. Their sole purpose is to earn money, not to mitigate risk.
What does this all mean? It means the hedge fund industry is making a gigantic proportion of the profits. The top .1% is earning nearly half of the profits in the industry, through not just hedge funds, but other similar vehicles.
The finance industry is a complete scam, designed to funnel money from the 99% investing public into the hands of the top .1%. Sure, some of you will make good money, but stastically, the rest of us will lose, and who is feeding off us? Hedge funds, and the .1%. You have better odds going to a casino and playing slots, the worst-paying game in the house, but still better than the stock market.
Also, the government is in bed with the financial industry. Tax loopholes give hedge funds and other top players the ability to write off losses and not pay taxes on gains for years at a time. For income they derive from the hedge fund (profits), they pay only 15%, rather than the 35% income tax charged to most people earning 80k and above. Meanwhile, you have to pay taxes for not just your own income but also capital gains.
The worst part by far is that the government "encourages" you to put your money into your 401k through 'tax exemptions', which basically puts your money with the lowest tier of the financial industry - pension funds, retail wealth managers, and retail asset managers. These guys have shit strategies like long-only or domestic equity (which means they only invest in American stocks), and have nowhere near the capability and reach of hedge funds. These guys are even more likely to lose your money than you are, and even worse is they will take a 2.35% cut while doing so. And you get penalized when you try to take your money out early. How f***ed up is that.
In other words, if you aren't in the .1%, you have no access to the derivatives markets, you have no access to the special deals that hedge funds and other wealthy investors get, and you have no access to the resources, information, strategic services, tax exemptions, and capital that the top .1% is getting.
If you have any questions about what some of the concepts above mean, ask and I will try my best to answer. I'm a first-year analyst on wall street, and based on what I see day in and day out, I support the OWS movement 100%.
tl;dr: The finance industry funnels money from the masses to the ultra rich, through vehicles like hedge funds which dominate all of the financial markets.
h/t Scott
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LOL FIGHT CLUB
I thought he was talking about bird watching
Fuck that. Buy a few blue chips and put them away. When INTC is yielding more than Treasuries, I'll fuck a goat before I buy a Treasury.
If you don't trade and you don't buy financials or other bullshit companies, a lot of these problems go away.
Disclosure: Long gold, guns, food, and INTC.
Hey man - who's to say INTC will always be there? Tech companies bite the dust all the time. Just ask anyone who owned Nortel.
That was a 160 word opening sentence. Not bad!
The old tyler is back.
The one who doesnt trade.
I noticed that too lol!
You don't have to have money in the exchange to get robbed by the fascist. Public money bailouts the Fed devaluing the currency by MBS and TRS purchases . Rampant insider dealing to reward fascist insders who in return reward congressional insider thieves all at the expense of the American people. Now they take the fraud and theft show to Europe at the expense of the American people to benifit banksters and Congressional theft accounts . The money stolel by banksters and congress could fund Social security for 100 years . At least we could get the money we put in back but we have the fascist wings of the Rep. and Dem. call for cuts in SSI while the insider theft goes parabolic.
I just watched the John Stuart (Daily show) outline how the FED loaned the money to the banks at zero and the banks loaned tio the gov (treasuries) at percent, and therefore profited. He then went on to claim the gov is the worst loan shark, since "the government loaned money to the banks which then loaned money to the governemnt..."
Normally I enjoy the Dail show, but how could he get it so wrong??? the FED is not the governement!! I have to think TPTB have their hooks in Stuart now. Normally he is informed. Why get this simple fact wrong!? Coverup?
He is a comedian with an agenda and nothing else.
I dont think anyone believes the fed acts independently of the government. That makes it functionally part of the government. No need to split hairs here about private ownership.
The fifth plank, of ten, from the Communist Manifesto:
5. Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.
Stuart? LMFAO..........
His real name is Jon Leibowitz and his brother is Larry Leibowitz Chief Operating Officer of the New York Stock Exchange
The Fed is as much the governmnet as the government is. If that makes any sense.
His brother is at NYSE.
yep, i agree
pretty funny to read this rant between charles schwab on the left and on the right...$7 Scottrades!
But G.W.,The idiot Son, told me over and over that this was a trickle-down economy.
Overall, the house wins. People like to think they're lucky, but luck doesn't make a lifetime living. A lot of the homeless in Las Vegas are gamblers who used to have money.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Even though today, we have the Internet and Social Networking sites. I'll gander the folks who used homing pigeons and other means of communication skirted by the depression and WWI/WWII debacle. IMHO.
That was " RICH" , in a poor way! Nice quote...
OT: Republican Jewish Coalition Bars Ron Paul From Presidential Debate
http://www.dailypaul.com/189996/republican-jewish-coalition-bars-ron-paul-from-presidential-debate
Yes they just make up thier own rules now just as the main stream media does about Ron Paul..
Thanks for the reminder. https://secure.ronpaul2012.com/
If everyone shares the same view than there is nothing to DEBATE.
While I do not agree with Ron Paul on many things... this is not good.
Don't know who to forward this to RE:Paul. Set up a town hall type webcast with Ron Paul at the same time as the debate and have him respond to the questions or variations thereof. You can also have him rebut other canidates stated positions. You also might have time to find a station that will broadcast it.
If preplanning ground swell goes well, they will offer you a place on the stage so they can limit you to 30 seconds. Tell them to f-off and continue with the town hall approach. My guess is you will get higher ratings than the debate.
Call it Ron Paul : He stands alone (listen to what the MSM does not what you to hear).
Edit: How about an ad: Where does Ron Paul get all of his outside of the mainstream ideas? Then show a copy of the Constitution and Bill of Rights. or Put him in a powedered whig with the founding fathers - Ron Paul - not a flip flopper, supporting the same radical ideas since 1776. Time to gear up the machine RP!
You are a rare pea in the pod...
Stay away from grassy knolls at hedgefund parties
Thanks for taking the time to write.
This guy misses the point - don't hate the player, hate the game. The hedge fund industry just takes advantage of the rules (or lack thereof).
The enablers of the game are the Federal Reserve, and the regulators who look the other way, like the SEC and the CFTC. You want to reform the system? Start there.
The system is broken, and the root cause is in DC, not NY, but the primary manifestation of the rot is the capital markets, and especially stocks, which take advantage of the now false myth that the US stock market is fair, and suckers everyone from the middle class with excess capital or savings into it. The way to fix the problem is not to attack Wall Street or Occupy Dirksen - those are short term solutions that resolve nothing - but to "starve the beast" by refusing to participate in the fraud. Alas, that requires overcoming that primary urge that the DC-Wall Street syndicate knows is everyone primary weakness: greed.
Greed is good.
And all of you pussies out there crying about inequality this and unfairness that...
Take some fucking responsibility for your own situation.
Can't wait till you get laid off! Guessing you are a desk jockey who does sh*t
true dat
Starving the beast means creating local communities and alternate payment methods (non reportable).
Just wait and see what happens when Joe Six starts getting interested in stocks again.
Of course, they will only start jumping in after the Dow reaches new highs.
After that, it is going to be a Pell Mell Panic to open up daytrading accounts.
The time to buy stocks is now.
When sentiment is the worst, things are falling apart, and the retail investor has been exiting the market for months and months on end.
Dividend stocks are leading the tape. Many utilities and cigarette companies are making new highs.
Eventually, people are going to get sick of earning nothing on their savings, they will eventually pile back into stocks.
RoboTard: seriouly, does someone pay you to post this ignorant shit or is it your goal in life to accumulate as many inverted red triangles as any poster in the history of the ZeroHedge forums?
Maybe Joe Six finally realizes that the stock markets are broke dick crooked and starts slamming the cotten/linen fiat into AG and AU US Eagles.
Robo titties, you couldn't be more off point. Most people in the working circle community speak out loudly to stay away from the corrupt market. You need to get out more.
Small investors exiting the market because they are running out of money and are unemployed. The numbers do lie when they are not the actual numbers to gauge the economy.
Depression is upon us and it's hidden digitally. 401K's and IRA's are being cannibalized to pay rent.
At the Palm Beaches, a barmaid told us that she used to serve 200 mojitos per day @ $12 a pop. That weekend she was down to the 40's while @ $8 a pop. Nobody has any money to spare. The upscale houses in Palm county are down 60% + and sinking.
And Robo is playing the rigged casino being inflated artificially? Yes you can make some money by being nimble, but when she blows, you're done for the year.
Dear RobotLemming,
Please shut the fuck up.
Less and less members of the general public, and NOBODY here on ZH, is buying your shallow, blinkered, mindless stock-pimping bullshit. And the fact that you constantly post such outrageous crap without EVER coming back to defend yourself or answer your critics merely proves, beyond any doubt, that you are nothing, NOTHING but an antagonistic troll.
Tyler, I hereby formally request that you ban this bastard once and for all.
No akak, robo is the horsefly in the lemonade that everybody needs to talk about.
More like a turd in the punchbowl --- the big, mushy, greasy, corn-laden, morning-after-Thanksgiving floating turd that refuses to be flushed and keeps popping back to the surface.
Oh come on, Robo's inane comments are worth a chuckle. You're being to hard on the boy.
The way folks here throw around the term "sheeple", one would think that most people believe they exist. If they do in fact exist, then what RT says is correct. Of course, new highs can take some time and are not a sure thing, right Japan? I'm guessing that 38,915.87 is going to hold for a while longer.
I don't think the stock market is rigged. If you are trying to make money every day in the futures markets then your chances of success are pretty low.
It would be the equivalent of walking into a casino and asking to be dealt into the $5k/10k no limit holdem table. You are playing against the very best and will likely lose your shirt.
But if you are in the market to supplement your income, have a long-term horizon, and buy into solid dividend-paying, consistent earners, you can make a lot of money over time.
Thank you for pointing out the POINT one percent. 9/10 of the 1% are very much like the 99% except have more gas guzzling SUVs and excessively big houses. Maybe a nanny, but not servants. And not ruling the earth or looting the middle class with exotic financial instruments.
Percentiles don't really reveal the outrageous excusivity of the elite. A log scale is more appropriate. The tiers are not 99th percentile and everybody else. The tiers of lifestyle and elite access are more like: <90th percentile, 90-99th percentile, 99-99.9th, 99.9-99.99th, 99.99-99.999th, 99.999-99.9999th, 99.9999-99.99999th. BTW, the 99.9999999th percentile are the richest 70 people on earth.
nice commitment
The rabbit hole goes deeper than this.
As it turns out, the financial system used the world over is complete shit and unsustainable. The creation of this system is the greatest hoax ever perpetrated. You really have to take your hat off, it's something to behold.
On top of all this, the human population is in a clear bubble, we are at peak global crude oil production, and the net energy from fossil fuels is declining.
In short, we're fucked. And there's nothing that any of us can do.
If any of you have anything "invested" in the current system, whether money, time, brainpower, or emotions, you are kidding yourself. You can certainly enjoy it while it lasts, but it's going to fall apart. I certainly don't care anymore, not one bit.
no duh?
These ass hat wanabe MSM loosers, know NOTHING about finance! It's like looking @ Uranus from the Sun> with a magnifying glass!
I've been out for weeks Bitchez, save a little position in PM LEAPS.... Hahahahahahahahahahahahha!
"Next, if you're doing the investing yourself, you're paying ridiculous spreads. The bid/ask spread of a stock will cause you to be down another 2-3% the minute you buy the stock. For example, if you're buying a share of company at $4.25, you can sell back at only $4.15."
What kind of idiocy is this? first of all, the spread doesnt mean diddly, if it ever did. By the time you buy and sell, unless you're an HFT Box, the price have moved many multiples of the spread. Buy at 4, sell at 5 or 3, 6 months later, who cares what the spread is .
Access to fancy swaps is also a straw man.
Yes, the system is rigged, but this piece is ridiculous
Those huge spreads are due to HFT frontrunning.
Even on highly liquid names a market order is an invitation to tempt fate as the millisecond your sell order enters and is matched with the immediate low ball offer that is bid and retracted one thousand times per second and vice versa when you buy.
I have learned to set limit orders a few pips above or below whatever current bid is out there depending on if I am selling or buying, partial fills accepted of course, even for tiny orders. There is more pricing variation than shown on the daily and weekly graphs of the ticker price.
My orders always seem to fill although when you look at graphs of pricing action sometimes my trades are above or below the official price at that specific time. I occasionally get partial fills. Whoever heard of a partial fill on 400 shares of EWZ? I am certain that if a bid within 0.5 percent of the current ask is put in that at some instant I am the only offer out there when a market sell order comes in.
Observing and thinking about how computerized matching occurrs at the margin led to one strategy of HFT that I mentioned above, probably the simplest.
If you wonder why more often than not your market order is off the best price that was quoted you, and off in the direction that benefits the counter party, now you know my theory. You are paying pennies and sometimes nickels to the frontrunning scalping machines known as HFT.
Have to think about a little more (not tonight after a few glasses of wine at dinner) but your approach does make sense.
Anyone that does not know it is corrupt and rigged has no business being in the market. I challenge anyone to point to a time when the markets were not corrupt. Perhaps they are more corrupt today. Clearly technology provides new and creative ways to game the markets.
Agree with most of what was said in the article. However, many hedge funds also lose money. Given their advantages as outlined, thats quite pathethic. Still, with experience and savvy, you can do quite well trading/investing if you know how the game is played.
I'm not really sure that even the richest are extracting wealth from everyone else, with the poor performance levels of hedge funds and other managers of OPM. I kind of think that the pie is shrinking with all the fund outflows. 10k baby boomers are retiring every day and moving their funds from equities and other risk assets to "safer" fixed income vehicles. Retail investors are pulling out and trading volume continues to decline. That leaves fund managers in a circle shooting at each other and circulating the money among themselves. Maybe the wealth extraction is mostly limited to what they can get in bonuses and fees for moving money as Michael Moore likes to say. Yes, "master manipulator" Goldman had that record number of positive trading days in a row, but they are suppsedly getting out of the prop trading business. If they thought that it would continue to be as lucrative as before, they would have figured out a way to continue those operations.
This piece is pretty ignorant stocks trade in penny spread increments this isnt the 80's trading in 1/8 increments. Not sure I have seen any stock with a 4.15 bid and 4.30 ask. The hedge funds are underperforming the index this year so not sure where you get your facts that they are making the majority of the profits.
Yeah he must be talking about smaller names. The bid ask is not that large, but if you start throwing around market orders carelessly you will see your settlements at five cents off what you thought was the bid or ask at the time you entered your order.
My older acquaintances said this never used to happen, but there was real liquidity in the markets then when trades were quoted in fractions rather than pennies.
Yeah, looks more like an option quote.
eventually, i think, the stock market will die...there will be a lot of pain before that, and massive wealth destruction...and then the headlines will come..."the end of wall street" etc...no one will want anything to do with it...and then, imho, a fine bull market
I always look forward to reading your posts here.
Interesting article, but he/she does not know crap about taxes. Yes, they can write off losses. Guess what, so can Joe Jackass. They write-off losses against gains to minimize the tax hit.
Oh, the big guy gets taxed 15% on cap gains! The little guy is taxed 0.00000% cap gains, if he is in the 15% tax bracket. Look it up.
Sorry, this is my area(taxes) and I hate disinformation.
The hedge fund managers are getting a screaming tax deal though, but that is a separate issue (carried interest). Why they cannot legislate that loophole out is fucking crooked!
then you shoyuld know zero per cent of zero equals......
Funny that Zollick of the World Bank wanted to see if it would be possible to interject the gold/silver standard somehow into the world market as he saw what was coming. I guess after knowing how fiat systems crash and crash and keep crashing over the years it seems it would be a prudent idea. However, if I was one of the .01% I would bid gold up and get the suckers in and the make it crash to the ground....then buy it all.
On the other hand, the sea change that occured about a year ago was after 40 years of selling gold (England sold a lot of theirs for $250) the central banks and soverign wealth funds have buying hand over fist. Why? Are they stupid or something. Must be. IMF puts 400 tons of gold out and in two days it is gone? Must be a bunch of suckers buying that crap. What are they thinking?? Value in gold?
So the argument about the dollar is the world standard is a bunch of shit. The world has been looking at replacing the dollar for over 5 years now with a basket of currencies. China and India are a major force in this. So I look at the dollar going up (78cents) is a joke. The only reason is that the system is so bad that people are buying dollars..but they are also buying gold and silver and other currencies. If the dollar was that strong it would not be sitting at 78 cents. And really over the past year it has moved 6 cents down and 8 cents up. We will see. Boomerang...as Lewis points out. When you throw a Boomerang it usually comes back. 4 years ago we threw it and it looks like it is knocking at our door.
Trading this market is asking for a loss of wealth. You cannot win trading. Even quality miners, I make a little, then if I hang around too long, it is gone. And nothing has changed. They will continue to report good earnngs quarter after quarter. Odds are against the little guy. This article makes some good points, most of which we know here.
And you seem to forget one thing Robot, Joe Sixpack is broke, over 50 million of them do not have a chance of putting money in this market. Another 50 million stay away for the reasons we all know here. The retail investor is not coming back in droves. Not until they fix the system, and they have not even given out the instructions on how to do that much less set the schedule.
You talk about gold, silver not performing. Well newbie, check out the article here about which asset class gained the most this year. And which asset has been in a bull market for 10 years. It is obvious that those that continue to knock us, this site, gold and silver do not have one freaking gold coin. They know nothing about how to purchase it and know nothing about the definition of real money. I just ignore them and feel sorry for them.
And finally, what makes me so sad is to see so many in this country just going about their business as if all will be normal soon. I had one blogger ask on another site if inflation will bring back the price of his home of a few years ago. How can they not get it. It is over. The housing recovery is nil. Lets talk about it in a decade. You need a cave, you don't need rentals and vacation homes. So many just do not understand where this train is going. It will be an ugly surprise for many.
Good Night
Nominal thinking is as prevalent as chlamydia. It's carried around by many who never know they have it.
Personally right about now I would love me some nominal rises in housing so I might someday get the fuck out of my house.
You goldbuggers should wish for that too.
Inflation only hurts savers. Who the fuck saves anymore in dollars?
What I really mean is
Gimme dat old time inflation
Gimmie dat old time inflation
Gimmie dat old time inflation
It's good enough for me.
Everybody sing!
Tyler, I disagree with your post above which says the problem is Washington not Wall Street. It is both and they are not truly distinguishable as the main players rotate from one place to the other regularly. We see the same problem with large industrial companies and their regulators/ pet congress critters. Our large companies print money in the form of stock certificates and give it to their buddies exactly like the FED. The wealth of the non-financial sector is being stolen as well. Then of course we have the complicit media who fails in its primary mission to be the guardian of truth and our liberty. The fight between the Left who blames corportations and the Right who blames government is a distraction. None of it should be distinguished.
I agree of course with part of the antidote being non-particpation, another part is the education by the non corrupted MSM which you have provided, and to which we are all so deeply indebted. The most important thing however is our ETHIC as a people. We are no long bound by honor or integrity. In the End money is nothing more than an agreement. A society which does not honor the agreement, even when no one is looking collapses.
Like the coffee mugs said at good old DBL: No Guts, No Glory.
You just know that Roboballsack is the proverbial 400 pound fat slob sitting in his mothers basement in his underwear, and in some sick deranged fashion, he feeds his infantile urge to piss off as many people on ZH everyday by stirring the pot with nonsensical drivel, as it is his only contact with anyone or anything apart from his shriveled up wiener that he whacks off when he gets another red arrow down, of course he has not actually seen is 2 inch worm since 1984, because of the 15 fat rolls that he tucks into his tighty whiteys, which are all covered in twinkies, beer and smell like a 5 year old rotten deceased fish head! Robo, go upstairs and get back in bed with your 3 cats, as that is the only pussy you will ever get buddy!
I took all my money out of the stock market, my 401k is all in cash and money only goes in to get the company match. I imagine they are trading with that money but I can't be so sure. Heck for all I know its going to the latest European bailout program. I have not invested since March of 2009, yes I can call tops and bottoms very easily, but I choose to stay out of it, just because of the pure reason its rigged. It's the same reason why I don't visit a casino, and keep hitting the button thinking I am going to win with the rest of the zombies. I still follow it, and know how they do things. Its very simple to analyze their actions. You know its rigged when the financial industry has 16 percent market cap in NYSE / NASDAQ / AMEX, alone.
The financial industry statistically speaking is half a bubble - 30 percent of one industry alone is a bubble.
3 industries account for 50 percent of the market cap:
Computer and Technology -17 %
Oils-Energy - 17 %
Finance -16 %
These three industries all feed off each other (finance with computers and tech ie algos, speculation with oil), but cannot function without the other 50 percent. These 3 industries are in a serious bubble. Its sort of like the railroad age with the robber barons, but this time its with computers and technology.
Therefore the following industries market cap account for the other 50 percent:
Medical (Unfortunate considering health should be more important than money and oil)
Consumer Staples
Utilities
Basic Materials
Retail-Wholesale
Consumer Discretionary
Industrial Products
Business Services
Conglomerates
Transportation
Auto-Tires-Trucks
Aerospace
Construction
The people in these industries are engineers, doctors, skilled tradesmen, and hard workers.
Serious inequality. Any question why unemployment is so high? I do not have access to compile other countries data. I also do not have access to previous market percentages. Munger said the finance industry needs to be decreased by 80 percent. Its just a big computer program anyways. Whatever happened to Joe the Plumber? What happened to John McCain?
The rebuttal on BI was aristocratic and sarcastic, and demeaning to those who work extremely hard just to put food on the table (and the tables of the 1%). They keep forgetting that without the 99 percent they are nothing more than a 1% with some paper and a computer. This post is not meant to knock those 3 top industries, because I am positive there are some smart individuals there, but lets get real the inequality thing is tearing this country apart. Why should the rest of society play by their socialist rules when they can be capitalists?
Mostly accurate, but why do I get the sense this being written by someone in the backroom of the hedge fund who's pissed that he's not making the money 'the big guys' are? Of course the odds are stacked against the retail investor. Is this news? Maybe he had an article due for his MBA class and thought ZH would also be a nice place to send it to?
Maybe the author just got laid off from MF Global.
durrrrrrrrrrrrr back office monkey is a back office monkey. FoF scum
Maybe he's right about some of the big boys out there, as the Tylers have previously hinted at. That stinks. But most hedgies aren't crooks, nor are all hedge funds designed for the ultra-rich. Most of us work for smaller shops, have wealthy but not super-rich clients, and are just hard working guys trying to generate better risk-adjusted returns than the long-only crowd by working harder and being more careful. Not by way of trading exotic derivatives and comitting fraud. This 'letter' was a little over the top, in my opinion.
While some of what this fellow says is true, there is also a good deal that reflects the moisture behind his ears.
Small investors may well be behind the 8-ball, but a lot of that is their own fault. Lifting offers and hitting bids might be occasionally the right thing to do, but most often it is not and substantially increases the B/E in all but the most liquid issues. Giving a broker discretion is obviously unwise. Thinking that one can be a “part-time” investor and compete with people who do it for a living is delusional on a long term basis. It’s kind of like the guy who thinks he can protect his home against a Blackwater/Xe assault because he goes to the range every weekend, weather permitting.
The small investor has one big advantage over the big funds, however, which is ease of entry and exit. Managing a modest sized portfolio is infinitely easier than trying to move a ten billion dollar portfolio. Execution in and of itself is a rare skill. One of the best ever is the much maligned George Soros. He never forgets it’s all about price AND volume.
A lesser advantage that the small investor has is that he is too small to abuse. That privilege is usually reserved for a mid sized mutual fund or corporate pension, or the proverbial Bavarian Landesbank. John Paulson and Goldman Sachs are hardly going to collude to screw Joe Sixpack and his Schwab portfolio.
Regarding IPOs, OTC derivatives, etc., it is simple economics that prohibits the small investor from participating in these things. IPO allocations go to favored customers whose commissions pay the bills (or to Congresspeople who can influence policy, right Nancy Pelosi?). Nothing surprising there. Similarly, it makes little sense for anybody to take the time to construct a derivative position for a client only prepared to put fifty grand into the trade. Ironically, OTC derivatives is a place where the wolves turn on each other, so small investors shouldn’t be that upset about being left out. A hedge fund asking for a way to take a view on, for example, the Nikkei has to play coy even though the IB writing the position probably can guess the directionality the HF is seeking. Then there’s the argument about variables such as volatility, especially in thin markets. Get passed that, then there’s collateral levels. Finally, in a thinly traded type of position there’s MTM pricing. You say it closed here, I say it closed there. The whole thing is a constant battle, though sometimes in pans out in everyone’s favor such as in the fast moving markets of 2007-8 when BOTH sides of a trade could show a profit by judicious use of their own MTMs.
While some major players have access to non-public information, one of the funny little secrets of the HF and IB industry is that EVERBODY always thinks SOMEBODY ELSE knows what’s going on. Conversely, if your HF knows, others probably do, too, so the advantage is lessened. Often, everyone is equally in the dark. Doubt that? Ask John Paulson.
I agree with everything you say except that joe sixpack is too small to steal from.
HFT has been stealing pennies and nickels from joe for years every time he does a market order.
A few million pennies a day start to add up with the frontrunning/scalping HFT algos.
I think what he means is - if you're a small guy, you can get in and out of the market without any fanfare at all. No need to tell the world what your plan is. Here's an illustrative example:
Your plan may be buy GOOG and sell when it goes up 20%. So you buy into GOOG, wait for it to go up 20% then sell.
Now let's say someone is running a "pump and dump" scam. Do you think they're looking to see "Hey wait a minute, this small time investor is buying and selling when it goes up 20%. Make sure we pump it only 15%." NO! They're looking at so many other things. They don't care about the small timer.
I know my numbers are off, but you get the point though. I dumped 95% of my portfolio in 2007, because I had an instinct that something was up. Stayed out all through 2008, and kept moving my CAD and AUD into USD. When both those currencies crashed against the USD, swung money back into those currencies and bought up government bonds. I came back into it at the start of 2009 - invested in oil and the Canadian dollar briefly, then got out again at the end of 2009. Earning crap returns but hey I've got my funds.
Right now I have less than 10% in the market tops, and on some things I have a very long horizon, wherelse I have a very short horizon on other things. 90% of my money is in cash and Canadian government bonds. Yeah, yeah, I know about gold and other PMs. I get told to buy crappy mutual funds all the time "It's the compounding! Dollar cost averaging! Diversify!" People at my last workplace tell me things about buying property and having a diversified portfolio for your retirement. Fuck off and go away.
big C
I will b in HK in february and will need to find rest in a reputable establishment that serves good tiffin brought by serving wenches of a visually stimulating nature while resting my boots on the back of my loyal gillie wallah.
Can you recommend?
Don't think I can help you there. I haven't lived in HK for many years, and though the place has its good points, I always found the obsession with all things monied rather offputting. Perhaps Banzai7 is your man, as I believe that is still where he hangs his hat. My pith helmet comes off the head in that former Outpost of Tyranny, most recently the stomping grounds of one Hillary Clinton, who apparently came to pass a message from one Nobel Peace Prize winner to another.
Interesting times ahead then.
For us all but perhaps more for you, I hope it goes well there for you.
I'll try wb7
Cheers
Thanks Tyler.
VERY funny . heheheheheheheh ;-!
This sums these greedy wankers beautifully... enjoy kids.
http://www.youtube.com/watch?v=k04p0hoTi-c
Fucking hilarious. This insider crap is extremely dubious (rounded to zillion digits). Fuck yourself if you failed.
Gold is manipulated with derivatives. No different than any other type of investments.
Derivatives and Dark Pools are the problem.
I want to know at what level Goldman Sachs and JP Morgan are in bed with this out of control goverment.
Read the first three paragraphs, then stopped. The guy is clueless and doesn't know what he's talking about. There's no way this guy is a professional. Intern at best. Probably just lying though.
LME flash crashes....all trades before 11:46 GMT will be voided....
Don't think he's lying but definitely overwhelmed with something or another. Concerning 'fairness', when was it fair?? 50 yrs ago? 25? Hate to sound like a pompous this early in the morning but years ago people trying to play in commodities paid $75-$125 to make a trade in very wide markets. Now we have $5 retail trades you make from your iphone and all we really want is something to whine about! There has never been this much low cost access to trades and information, nor has there been this much money trading everything, 24/7. Yes, the big fims can now trade a fractions of a second in massive volume, and they still get their information the old fashioned way.....connections.
Old story from the grain pits. New trader comes in and starts making markets...hands up, loud and clear for all to hear. Old trader wanders into the pit, makes the rounds to his friends saying hello...they chat, they scribble on cards and they chat some more. New trader still making his two sided market available to all. Old trader has a quiet word with the pit reporter and the boards click clack with price changes. Old trader nudges new trader and says '...Open Outcry, how do you like it?'
LME to reopen 1pm GMT
So thats why hedge funds never loose any money... ahh wait... they do.. what a load of crap, sounds like somone cant hack loosing and needs somone to blame.... Very simple "you buy and the line goes up, you make money. You buy and the lines goes down, u loose money..." It wasnt the hedgefunds fault... Dont like paying lots of fees in the spread and commission?... stop daytrading!!!!
Withdraw your 401K now, people. Before they go busto. I just hope my dad's (BPD) pension doesn't get wiped out; he has 2 more years to go to get full retirement and I fear the corrupt markets will eat that (which will be interesting b/c the only reason the cops are working for the rich elite is BECAUSE they line their pockets with above avg pay/benefits).
I learned from the Full Tilt Poker scandal: you don't HAVE the money until you can stand infront of it with a gun.
I have worked on many engineering projects. Most were long term (1.5 - 3 yrs) Rumors were always numerous about the status of the company. When layoffs were coming etc.
It always made sense to put yourself in the position of the CEO and ask yourself what would you do? I'd say there was about a .85 correlation when you predicted the future based on this. Of course with the volatility Timing is essential.
The game has been rigged against the 99% for ever. All fiats will fail otherwise I would have a pocket full of Roman coins!
May be a couple reasonable points in there somewhere but very poorly articulated. Not sure who this guy is analyzing hedge funds for but I seriously question his credentials. HFs are getting killed by the nature of the current markets which are effed up by the BANKS and the general nonsense they have been practicing since 1999.
Thanks for your courage in posting this. Virtually everyone has a bias in regard to the criminal finance industry, anyone with any real assets that are at stake. Who is willing to be a martyr and do the right thing if they are a politician?
As an analogy I would suggest the porn industry. What the public sees is what the industry wants to show you after all the mess is cleaned up and the images are thoroughly edited. What you will not see is the broken lives, the criminal entanglements of the producers, all the STDs, the warped social circumstances created by this business.
What is needed are power point presentations exposing the frauds of the hedge fund industry; but there is too much at stake, where you have a wealthy insider, you have spouses and kids and hundreds of enablers, and government expecting their taxes paid. Not many incentives to correct the legal frauds unless they will go to jail or bankrupt if they don't.
I don't know who the young analyst was who wrote this? However, I am a 30-year veteran to the industry and I need to report that the observations are fundamentally correct.
His current description was not the folklore of what the Street was represented as being in the 1970's. It is today an evolution of objectives narrated by naive regulatory public relations obfuscation manipulated by the self-serving interests of the "winners" and defended by a political leadership that can't figure out, and has no basis from which to understand, what is going on.
With that mouthful, please let me add that there are plenty of seemingly wealthy .01% who have not had their assets marked down to market who, with their search for yield and adherence to conventional wisdom, do not understand that they are caught and are paying for everything.
I'm sure we will all survive, but it will become an interesting endgame for those that manage their lives through the process.
maybe robo is right
stocks may be a better option than cash
with all the QE cash is trash